Wednesday, December 17, 2014

Unable
to continue waiting for the state to provide regulatory guidance,
some local governments are considering taking action locally, in an
effort to control the medical marijuana industry. Both Seattle and
Tacoma recently proposed radical changes to medical marijuana sales
in their cities. Seattle’s Proposed Marijuana Regulatory Licensewould
put in place a secondary regulatory system for collective gardens and
retailers, and Tacoma’s marijuana enforcement planwill
end medical sales except through state-licensed recreational shops.
These changes come as no surprise, as current limited regulation of
medical marijuana is an increasing cause of concern for the public
and for local law enforcement.

Due
to the complications of implementing the original medical marijuana
legislation, there are few controls on the location of stores, their
density, the quality of the product, the validity of patient
authorizations, and the legitimacy of the business.

The
current system has been an interesting demonstration of the rules of
a free marketplace, but it has also created an atmosphere of
questionable legality. Keeping marijuana business operations fully
legal is a challenge, due to vague or inconsistent information from
state and federal agencies. In comparison to the recreational
system’s heavily regulated licensing, tracking, and taxation, it
becomes obvious that state legislators will want to make some
changes.

Lawmakers
have recognized that a truly successful recreational market depends
upon the state reconciling the medical market’s disparities in
labeling, taxation, traceability, quality control, and allowable
locations. During the 2014 legislative session, the state senate and
house debated several bills addressing regulation of medical
recreational marijuana, but none made much progress.

One
of the bills that received the most attention last year, SB 6178,
sponsored by Jeanne Kohl-Welles, addressed many of the problems of
the existing medical marijuana system and proposed more closely
aligning the medical and recreational systems. SB 6178 was reviewed
by the State Senate but never made it out of the Ways and Means
Committee last year.

Senator
Kohl-Welles will propose a new bill for the upcoming 2015 session.
The most notable provisions of her bill will:

Permit
home grows (6 plants) for all adults over 21

Simplify
taxation to a single retail-level tax, eliminating
production/processing taxes and eligible for deduction from federal
taxes

Eliminate
Collective Gardens by August 1, 2016

Create
a state registry for medical marijuana patients, to provide tax
exemptions and arrest protection

Support
training, standards, and an endorsement option for health care
providers

Allow
delivery of marijuana products

Facilitate
research on and about marijuana use

It
is vital to a healthy industry that changes in regulation come from
the state, rather than a patchwork of changeable regulations in local
jurisdictions. The people of Washington State need clear guidance
regarding the possession and use of this newly legal product, and
that guidance should come from the state or federal level. Although
the desire for local control is understandable, local lawmakers
should regard their changes as temporary, and plan to fully
reconsider the situation once new state legislation is in place.

Monday, November 17, 2014

With passage of marijuana legalization initiatives in our neighboring states of Oregon and Alaska, current marijuana businesses owners in Washington are beginning to dream big. It’s worth asking the question: Can a Washington business expand to Oregon or Alaska?

Neither Oregon’sMeasure 91nor Alaska’sBallot Measure 2requires residency to run a marijuana business.However, as in Washington and Colorado, the state liquor agencies will be tasked with licensing and regulating marijuana production and sales.It is possible that the Oregon Liquor Control Commission (OLCC) or the Alaska Alcoholic Beverage Control Board (ABC Board) could enact different rules than we’d expect, based on the wording of the measures voted into law during the general election.

It will become legal to possess & cultivate limited quantities of marijuana in Alaska on February 26, 2015 (estimating 90 days from certification of election results); and in Oregon on July 1, 2015. Alaska’s ABC Board has until November 28, 2015 to adopt regulations, including an application timeline. The OLCC is required to begin accepting applications no later than January 4, 2016.

The conversation about taxation in Washington vs. Colorado seems to have had a beneficial effect on plans in Oregon and Alaska.Although both plan additional excise taxes, the overall taxation rate will be considerably less than that in Washington.Alaskan producers will pay a flat $50/ounce excise tax on product sold to producers or retailers, and Oregon’s producers will pay a tiered excise tax of $35/ounce for flower, $10/ounce for leaf, and $5 for each immature plant. Since Oregon already doesn't charge a state sales tax, this means that businesses within driving distance of Oregon will likely be disadvantaged if they don’t expand to the new market.

Next, as long as marijuana continues to be federally illegal, there are stiff penalties for transporting product across state lines.The federal restrictions also apply to paraphernalia, which by definition includes processing equipment.Transport to Alaska would face the same interstate transportation issues, while also having the additional risk of crossing international borders.

Nevertheless, opportunities beckon. Having learned through trial-and-error with the process in Washington, our state’s business owners are in a great position to leverage their knowledge and expertise in these new markets.

Friday, October 24, 2014

Following Maureen Dowd’s experience with edibles in Colorado, we’ve seen greater national
interest in the Colorado marijuana market.A larger audience brings greater scrutiny – resulting in July’s
last-minute changes to the LCB’s rules regarding edibles, and bringing greater
attention to the importance of the trademark in building a strong brand.The first trademark infringement cases
involving marijuana businesses surfaced this past spring in Colorado, including
the Hershey’s suit, and the MED-a-Mint conflict.These cases emphasize two
different points:first, the
infringement of existing registered trademarks, and second, the role of a
properly registered trademark in protecting a business’ interests in a
contractual agreement.

Businesses in an emerging industry are in a position to
experience even greater profit from time spent developing solid branding.A good brand not only helps drive a product’s
sales, but builds a platform for long-term growth.Registering a trademark gives a business the
means to protect its exclusive use of a brand, and protect its product’s market
share from confusion with similar products.A trademark can consist of words, names, symbols, devices, colors used
in a distinguishing way, brands, logos, even audible signs, fragrances, or
three-dimensional signs.

If a trademark is being improperly used, a business may file
a lawsuit to accuse another business of infringing upon their exclusive right
to its use.TinctureBelle, the defendant
in the Hershey case, surely knew that their Ganja Joy and other chocolate bars
were a bit close to the mark, but chose to produce these products as novelty
items.This only became an issue when
the products became more visible through media coverage of Colorado’s emerging
recreational market.TinctureBelle
changed their packaging, but a little too late to avoid Hershey’s suit.We expect to see similar cases as other
novelty items become more widely (and publicly) available through retail stores
in Washington.

The MED-a-mint case illustrates a similar use of the
trademark to protect a brand.When the
contracted manufacturer changed the labeling and packaging of the MED-a-mint
product, the business owner determined that the brand was being misrepresented.Citing their registered trademark, the company
filed a suit claiming a violation of contract that was causing damage to the
company’s brand.

When preparing to market a new product or brand, a business
will likely want to pursue a trademark. We strongly recommend seeking an
attorney’s input during this process, and the KB Law Group provides this service for our clients.

The trademark search is among the first steps, to ensure
that no similar trademark is currently pending or registered in the federal or
state databases, or in established common law use.Once a mark’s uniqueness is established, a
business can either reserve the right to register it, or begin the process of
filing for registration.In most cases,
a business must be actively using a mark prior to filing for its registration:it must be printed on signs, marketing
materials, packaging, or business correspondence.

Because of marijuana’s status as a federally controlled
substance, federal trademark protections are not available through the United States Patent & Trademark Office (USPTO).However, ancillary
businesses that provide merchandising or produce non-marijuana products may be
able to obtain federal trademarks.

In order to protect a proprietary name or image, marijuana businesses
may only acquire trademarks on a state-by-state basis, through the Secretary of
State’s office.Businesses wanting to
secure a trademark over a larger geographical area will want to consider
applying for trademarks in multiple states – which means vetting the desired name
and image in all target states before developing the brand or submitting the
first application.As Alaska and Oregon
prepare to vote on recreational marijuana this November, securing a regional
(i.e. multiple state) trademark could be even more important.

Wednesday, October 15, 2014

We’ve all seen the billboards in
Seattle, advertising for cannabis products. Given the guidelines provided in
the I-502 legislation, are these billboards legal?

Most current cannabis advertising
is for medical – and not retail – products. Requirements are not
consistent across the marijuana industry, although a number of bills were under
consideration during the 2014 session of Washington’s state legislature.
Until decisions are made regarding the future of medical marijuana in
Washington State, marijuana advertisements will continue to have differing
restrictions. Clearly this is a source of confusion for new I-502 licensed
recreational marijuana businesses.

Not all advertising is prohibited for recreational marijuana
businesses; it’s just subject to greater limitations than medical marijuana
products. Recreational advertisements must not:

Be posted in or on public property, including public transit vehicles or shelters

And finally, all recreational
marijuana product advertisements must include the standard four marijuana
health disclaimers:

This product
has intoxicating effects and may be habit forming.
Marijuana can impair concentration, coordination, and judgment. Do not operate
a vehicle or machinery under the influence of this drug.
There may be health risks associated with consumption of this product.
For use only by adults twenty-one and older. Keep out of the reach of children.

Permitted
Advertisements

Online
advertising – from
product websites to banner ads on industry pages – is allowed, though online
sales are not. Social media
– from dominant players like Facebook or Twitter, to industry-specific
marijuana finders – are all acceptable forms of connecting with customers.
Use of YouTube or other video
sharing websites to post promotional videos is expressly
permitted by the LCB, but businesses are cautioned to avoid material that would
appeal to younger viewers, and to exclude viewers under the age of 21 if
possible. This translates to an extra caution for posting on YouTube,
which permits age restriction to 18+ only.

Businesses must perform due
diligence to ensure they take all precautions to limit online traffic to
adults, and to deter minors. Easy steps are to add an age verification key to a
business website, and to monitor the site of origin for incoming traffic.
Any online advertising must also contain the standard four marijuana health
disclaimers, as detailed above.

Traditional
advertising options can
be complicated, but are generally allowed. Stores may include flyers or brochures with a
purchase, and supply customers with branded
shopping bags. Ads in newspapersor otherprinted media intended for
adults are fine. Direct mail and e-mail marketing are
allowed, though they may not feature coupons or discounts. Broadcast
advertisements on radio or TV
are theoretically permitted, though they might be questionable under current
FCC regulations, and near-impossible to segregate from a minor audience. Sign wavers wearing
provocative or eye-catching costumes may be permitted – depending on local
ordinances – but businesses should take care, once again, to make sure they are
not appealing to children and that mobile advertisements do not encroach
on the 1,000 foot rule.

Merchandising

Marijuana businesses not only
want to promote their brands, but also profit from promotional sales. The
problem is this: the rules for marijuana producers, processors, and
retailers (WAC 314-55-075, 314-55-077, 314-55-079) expressly prohibit the sale
of anything other than marijuana, and, in the case of retailers, marijuana and
marijuana paraphernalia. The solution? Many licensed marijuana businesses have
created and licensed a separate merchandising company with Washington’s
Secretary of State. This secondary company does not seek to produce or sell
marijuana products through the Liquor Control Board, but exists solely to
produce and sell materials that promote a licensed marijuana business.
These merchandising products, mostly apparel and souvenirs such as t-shirts, hats,
bags, glasses, coasters, etc., may not be sold or given away in a recreational
retail store, but they can be sold at non-marijuana stores or provided to bars
or other adult venues.

Because this arrangement is
complicated, we must emphasize the following:Licensed marijuana retailers are
not allowed to sell anything but marijuana products and paraphernalia.
Paraphenalia is in a class of its own: it may only be sold by retail
stores, and it is the only non-marijuana swag that retailers can sell.

Wednesday, July 30, 2014

We were excited to see the New York Times’ endorsement of legal marijuana in their Sunday Editorial Repeal Prohibition, Again. In its brief position statement, the NYT Editorial Board boldly states: “It
has been more than 40 years since Congress passed the current ban on
marijuana, inflicting great harm on society just to prohibit a substance
far less dangerous than alcohol.” The article advocates legalization on the federal level, giving states the responsibility to regulate marijuana.

Supporting their argument, the editorial board cites to the systemic
racial inequality in marijuana prosecution and criminal enforcement
(unduly affecting young black men). The article also discredits the
unsubstantiated concerns that marijuana is a "gateway" drug and
acknowledges that addiction and dependency of marijuana pales in
comparison to alcohol and tobacco.

Monday, July 7, 2014

The wait is almost over. Early this morning the Washington State Liquor Control Board (WSLCB) provided licenses to the first small group of 24 retail marijuana stores. It's been six long months for these applicants, who could open their doors and begin selling marijuana for recreational use as early as tomorrow, July 8, 2014. This will mark the first time that adults can legally purchase marijuana grown, processed, and sold by state-licensed businesses under I-502. (Keep in mind that marijuana remains a Schedule I controlled substance, subject to federal prosecution and civil forfeiture.)

First, a little background: the Washington State Liquor Control Board (WSLCB) has been reviewing retail applicants based on the results of April’s retail license lottery (see map). The board announced its intention to issue retail licenses in groups of 10-30 beginning this week. We expect to see licenses issued for approximately another hundred stores during the next 30-60 days, and the remainder sometime in the fall.

The total number will likely fall short of the WSLCB's proposed 334 stores statewide. This discrepancy is due to a number of factors, including a lack of applicants in some jurisdictions and local zoning prohibitions. More details to follow.Where will the first stores open?
On April 2, 2014 the WSLCB stated: “The initial retail licenses will be issued in batches (10-20) in the most populous areas.” First reports indicate 14 stores in western Washington and 10 stores in the eastern part of the state. By WSLCB rules, retail stores may be open 8:00 am – 12:00 midnight.Why are there so few stores (and when will there be one in my neighborhood?)
The allocation of only 334 retail stores across the state was based on population and demand estimates prepared by BOTEC, a consulting team hired by the WSLCB shortly after I-502 passed.

Unfortunately, local zoning moratoriums and permanent bans significantly decrease the public's access to state-licensed, legal marijuana. If you are curious about whether your own local government has banned marijuana or enacted a temporary zoning moratorium, a good place to start your search is the MRSC Marijuana Guide for Local Governments (although this page may not be up-to-date, since local marijuana zoning is changing weekly).

Note that although a county (Pierce) may ban marijuana sales, such a ban may not apply within the municipal limits of a city in that county (Tacoma).How many stores will there be?
The WSLCB limited the state to 334 retail licenses, although we may have significantly less than that when all is said and done. It's important to understand that the 334 licenses were allocated to specific cities or counties-at-large, so presumably, if a city institutes a ban, any licenses allocated to it would be removed from the equation, reducing the state-wide count.

Taking into account the current permanent and temporary bans, as well as jursidictions which failed to attract an initial applicant, we estimate the state-wide number to be closer to 250 retail stores. This could change, however, if local jurisdictions lift their temporary bans or the WSLCB readjusts the allocation of licenses by jursidiction.How much will marijuana cost?
Current prices for medical marijuana are roughly $8-12 per gram. General consensus is that when stores open, the starting price for recreational marijuana will be $12-25 per gram. This takes into account the additional overhead, excise taxes, and expected product shortages during the first year of sales.Shortages?
On average, it takes 3-4 months to bring a crop to harvest, and the first producer’s license was issued on March 4, 2014. Do the math. This recent AP story about testing labs provides some data about the state-wide harvest so far. As of June 28, eleven producers had harvested and submitted samples for testing. The WSLCB has now licensed 79 producers, so the production rates will increase, in time.Will they sell out?
Most likely.How much marijuana can I buy?
Under Washington State Law, individuals over 21 years of age may buy up to one ounce of marijuana, 16 ounces of solid marijuana-infused product, 72 ounces of infused liquid, or 7 grams of concentrates. Sales of amounts in excess of transaction limits can result in the retailer’s immediate loss of license.

When the stores open on July 8, only usable marijuana will be available, as no extracted or infused products have been approved.How much marijuana can I have on me?
An individual 21 years or older may possess no more than one ounce in Washington state. You may not take it over the border to Canada. Possessing more than one ounce may result in jail and fines.

An individual providing marijuana to an underage person may be punished with up to ten years imprisonment and up to $10,000 fine under state law. Penalty for a retailer selling to an underage person is a 10-day suspension or $2,500 fine (first offense).Can I smoke it or use it anywhere I want?
Opening a package of marijuana or consuming marijuana within view of the public is a civil infraction and you may receive a ticket and a fine of up to $100. Individuals consuming marijuana should be on their own property, or on the property of someone who permits consumption.What are the limits for legal driving?
If an officer suspects someone of driving impaired, he may obtain a search warrant for a blood sample. Drivers with blood tests that show more than 5 nanograms of active THC per milliliter of whole blood will be charged with a DUI – regardless of the driver’s performance on other sobriety tests.

One study compared the 5 nanogram THC limit to an equivalent 0.05 percent blood-alcohol level, less than the state DUI limit for alcohol in Washington. In short, do not drive if you are even slightly impaired.